Budgeting for retirement starts with honesty

The first step is knowing what expenses a farmer has and taking a good look at how those expenses are likely to change

Retiring can mean big changes for any Canadian senior and there is work in financially preparing for the change.

For Canadian farmers, an early start and an educated look at financial needs can mean more money in their pockets.

Patti Durand, an agriculture transition specialist with Farm Credit Canada, works with retiring farmers.

Many farmers don’t know where to start when discussing budgeting needs, she says, but it is all about asking questions and being honest. Don’t avoid the tough questions and seek out that knowledge, she says.

“You have this relationship with your bank or other financial planners who are available, don’t let your lack of knowledge be the barrier.”

For Durand, the first step to planning a retirement budget is knowing what expenses a farmer has and taking a good look at how those expenses will change after they are no longer farming.

Many expenses can be writeoffs for the farm, says Durand, but that can be a detriment later because it’s possible that farmers do not know their true cost of living without the farm.

“They generally estimate poorly when it comes to thinking about how much they’re going to need to live the rest of their lives.”

Once the farm is gone, those expenses still exist, says Darcy Kendall, chartered professional accountant with The Retiring Farmer.

“You have to be very aware that you may have those ongoing costs every year but you may not have that operation earning income anymore that covers it off.”

Throughout their careers, farmers have invested much of the farm’s revenue back into the farm. While it is a worthwhile investment, Durand sees a common lack of savings for retirement that also needs to be considered within the realm of the retirement plan. How is this lack of savings going to impact their retirement?

“They very seldom have any type of personal savings accumulated outside of their business. Obviously no pension but often no RRSPs (Registered Retirement Savings Plan), no other savings. There is great value and wealth in their business, but it’s not cash.”

When starting a farming business, the best advice Durand can give is from Stephen Covey: “begin with the end in mind.”

“The sooner you begin planning this, the more options you have to choose from. If you start putting aside some personal savings right when you begin your business, that accumulates over time and then you can exit without having to put all that pressure on the business.”

Tax planning is also a big part of the exit strategy that farmers need to examine before they plan to retire, says Kendall.

If there is a possibility of ownership transfer or a farmer is getting ready to liquidate their assets, take the steps to do a proper tax plan, he says.

“If you don’t, you could wind up paying a whole lot more tax than you need to. It’s a crucial step leading up to the retirement years to make sure you plan your exit properly.”

What seniors want to do with their retirement also needs to be considered when planning.

It doesn’t matter if they dream of world travel, home renovations, or vacation properties, or have smaller dreams of living on the farm and helping out the next generation because that is going to have a cost as well, says Durand.

Communication is a big factor in having a stable retirement budget. The next generation, especially ones who are planning to take over the business, need to know what the plans are, and retiring farmers need to be clear on what they want out of their retirement.

“We don’t have a crystal ball, but we’re guaranteed not to get what we need if we don’t ask for it.”

Identifying retirement dreams and goals is important, says Kendall, because financial independence is the number one goal.

“That’s primarily what we look for. Financial security for parents is a huge one. We want to make sure they’re financially independent. They don’t want to leave themselves open to being dependent on the incoming farming generation.”

Asking for help to become financially independent can be its own barrier, especially if farmers do not have a previous relationship with a financial adviser, says Durand.

Developing that relationship is key to alleviating some of those budgeting concerns or realizing retirement dreams. The knowledge and software are available, she says, and farmers shouldn’t be afraid to ask for the outside help that can benefit their budgeting planning.

“A financial adviser can literally estimate future needs that encompass inflation, unforeseen medical costs, look at whatever dreams or things farmers would like to achieve and lays it out so the senior partners can then say, ‘OK, here is the amount of money we’d have to extract from the farm on an annual basis for the rest of our lives.’ ”

Farmers who want to plan their exit, but are low on retirement investments or cash to retire on, also have options.

“At the very minimum, if you’re thinking of exiting any time in the next five years, let your accountant know that so they can give you some coaching and advice. It’s really unrealistic to build a business over 40 or 50 years and then expect to exit in one year.”

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